As we are currently in the midst of a wonderful summer of sport, I was considering writing a post about the factors which make some sports boring to watch and others exciting.* I am not, however, brave enough to put my head above the parapet on that subject quite yet. Instead, I decided to write about some vivid human behaviours that arise when we are watching the World Cup, all of which should feel very familiar to investors:

– Extrapolation: We can’t help but believe that what has happened in the past will continue into the future.

All it takes is one England victory and we are immediately checking our wall chart / bracket (delete based on age / location) to see who we will be playing in the final. 

– Momentum matters: Positive or negative progress can become self-perpetuating and an incredibly powerful force.

The wretched hydration breaks and their impact on World Cup games are a great example of how vital momentum is in many walks of life, and how significant interrupting it can be.

– We are overconfident: We all think we are better than we are.

We know more about what England’s starting XI and optimal tactical approach should be than their manager who has deep knowledge of the players and has won nine major trophies in nearly 17 years. 

– Emotions dominate everything: The judgments we make are often overwhelmed by how we feel.

As Paul Slovic highlighted when discussing the affect heuristic – when we feel emotional about something we lose sight of any nuance or reasonable perspective about it. We will see this in stark contrast when people react to England being knocked out (if, indeed, they are).

– Selective perception: We see everything through our own, partial lens.

If a player on your team suffers a potential foul in the area, then it is a certain penalty; if your team commits exactly the same offence at the other end it is absolutely not a penalty, and probably a dive.

– Narrative fallacy: Where there is randomness and chaos, we see compelling stories.

There will be some wonderful stories throughout this World Cup, and many of them will involve far more luck and fortune than anyone will be willing to acknowledge.  

– Halo effect / attribution error: We neglect the role of systems or chance, and focus on the impact of individuals.

We don’t want World Cup wins to be about teams, rather we want to put success or failure down to identifiable, individual agency – whether it is Mbappe driving France towards another title, or Ronaldo being responsible for Portugal’s lacklustre start. 

– Incentives matter: Most decisions are driven by the incentives of those who hold the power.

See: FIFA.

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Sometimes it is hard to get across behavioural investing concepts amidst the complexity of financial markets, but all of the same issues occur in sport and will be vividly apparent during the 104 games of the World Cup. Keep an eye out.

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* As a sneak peek, exciting sports (in my opinion) have high and persistent levels of jeopardy, but more on that another time.

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My first book has been published. The Intelligent Fund Investor explores the beliefs and behaviours that lead investors astray, and shows how we can make better decisions. You can get a copy here (UK) or here (US).

All opinions are my own, not that of my employer or anybody else. I am often wrong, and my future self will disagree with my present self at some point. Not investment advice.